Once more into the breach for Network Rail after Regulator's investigation but who is really at fault?

Published: 22nd October 2015

Network Rail avoids fine for poor performance - because of overspends and political pressure?

The Office of Rail and Road (ORR) has been looking how effectively Network Rail (NR) has been working (or not as the case may be) so far as delivering the results due from its investment funding. This investigation was made because of the high profile ‘project pausing’ - shortly after the May 2015 election, announcements made by the Government and subsequent ‘unpausing’ of them announced the day before the Conservative Party Conference.

How does it work?

The UK rail network is funded in five-year Control Periods (CP) and CP Five started in April 2014 and funding for this period was agreed between ORR and NR with the Department for Transport (DfT) in close monitoring attendance. This is because NR has been a DfT department since September last year and the DfT dances to the Treasury’s expenditure tune.

The Parties signed off a huge investment plan which was hailed quite correctly as the biggest rail investment for a century driven by record numbers of passengers and freight using rail. Transport Secretary Patrick McLoughlin and the Government maintained that £38 billion was to be invested on the railways but it now turns out that £25billion was for ongoing maintenance which is really operational investment, but a still challenging £13billion enhancement portfolio to improve performance and capacity on Britain's railways was to be delivered by April 2019.

In November 2014, ORR raised concerns about progress with projects and the ever increasing overspending by NR against the signed off five year budget. These concerns were brought about after a significant number of project milestones were missed causing an investigation to start in March 2015 to understand the reasons for enhancements going wrong.

Poor report on Network Rail

The ORR did not hold back saying that it’s investigation found systemic weaknesses in NR's handling of its enhancement programme including poor processes for setting initial project requirements, no defined framework for managing complex programmes, a lack of portfolio management capability and low productivity. Together these issues have resulted in significant underestimates of project timescales, and impacted on operational performance and costs.

But is it their fault? The political angle

ORR, NR and the DfT agreed the funding and what was to be delivered in the five year period starting in April 2014 but what is now emerging is that the specification was not really tightly defined by the parties. This meant that NR had to rush through ‘ideas’ to try and deliver them on time and the DfT has changed its mind on some schemes and as soon as a contract variation is required, then timescales and costs grow.

NR has worked with the regulator to identify and address its weaknesses through the development of an enhancement improvement plan. The plan is intended to improve how NR manages its relationships with project sponsors, to ensure safety is considered at a design stage, and to reform how costs and risks are estimated. They will also change project governance, deliverability assessment and monitoring methods.

What’s next?

ORR will be monitoring NR to delivering the agreed improvements and make sure the new way of doing things is fit for purpose and implemented. It has been recognised that this will be a significant and long-term challenge to integrate and embed the improvements but ORR says that they are needed to protect the taxpayer and freight customer funded investments.

They said:

ORR chief executive Richard Price said: Network Rail has been entrusted with billions of pounds to modernise Britain's rail network. ORR has been closely monitoring the company's progress during the first year of the current funding period, and has found evidence of weaknesses in Network Rail's capability to develop and deliver major infrastructure enhancement projects.

Network Rail's response to our investigation findings has been positive and collaborative. We welcome its enhancement improvement plan, which requires significant changes to the company's processes, systems, culture and capability. ORR is now closely monitoring Network Rail's implementation of the necessary improvements, as they are fundamental to ensuring delivery of enhancements on time and budget for passengers and customers.

Once more into a breach

Yet again the ORR's Board determined Network Rail is in breach of its licence for failing to adequately plan and deliver its enhancements programme. Because of the way NR has responded the ORR considers that the agreed improvement plan will substantially improve its ability to deliver the extensive enhancements portfolio by 2019.

A licence breach would normally result in a fine but there is little point as the regulator would be fining the Treasury which is probably a politically bad move! ORR has therefore determined that a NR fine would not be appropriate as it would not incentivise any improvements and that given the overspends, would be a waste of their money.

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